New Opportunity For New Jersey’s Distressed Towns and Cities

Some 75 municipalities throughout New Jersey could benefit from new economic investment through a little-known provision of last year’s federal tax-reform law.

Gov. Phil Murphy has recommended that the U.S. Treasury Department designate portions of 75 towns, at least one in each county, Opportunity Zones. The goal of this federal program is to encourage capital investments in low-income or otherwise distressed communities. Its true impact likely will not be known for years.

“New Jersey is committed to using every tool at our disposal to develop our communities and grow our economy,” Murphy said in announcing his recommended zones in New Jersey last Thursday. “This program provides real opportunity for our state that has the potential to create significant, long-term economic development in the communities that need it the most.”

The Opportunity Zones program, written into the tax-reform law, had been sponsored as legislation by Sens. Cory Booker (D-NJ) and Tim Scott (R-SC). The program is meant to provide opportunities for private investors to funnel money to distressed communities through newly created Opportunity Funds.

Working out the details

While treasury officials are still working out the details of program, the idea is this: A person would invest in a special fund that would then spend money to revitalize a community struggling with poverty and suffering from a lack of job or business growth.

The benefits for investors all involve a deferral or exclusion from taxable income of certain capital gains from investment in the funds, with the greatest benefits to those maintaining investments for at least a decade, which is the stated length of the program.

To qualify for consideration as an Opportunity Zones, a census tract — typically a section of a town or a small municipality — would have to have had a poverty rate of 20 percent or a median family income up to 80 percent of the area median. Murphy was allowed to designate as many as a quarter of the state’s eligible low-income census tracts, or up to 169 tracts, as Opportunity Zones, according to his office.

Officials from the state departments of community affairs and labor and workforce development and the state economic development and redevelopment authorities created a formula for determining which areas to recommend designating. According to Murphy’s office, that formula was based on such key economic indicators as income, unemployment, and property values and also accounted for geographic distribution, access to transit, and the value of existing investments. Murphy worked with Booker’s office, convened meetings and roundtables with mayors throughout the state, and met with members of Congress in selecting zones for recommendation. U.S. Treasury officials must provide feedback or approve Murphy’s suggested zones within the next month.

“Every community should have access to the resources needed to realize its full entrepreneurial potential,” Booker said. “But barriers stand between too many of our communities and the capital needed to generate economic growth and opportunity. I’m proud our governor is utilizing this tool to help drive investment across our state.”

Unclear impact

The impact the zones may have on communities is unclear. They could help revitalize communities largely passed over in the post-recession recovery. Similar programs, including empowerment zones and other designations made by President Bill Clinton in the 1990s and the New Markets Tax Credit program authorized in 2000, resulted in at least some gains in employment and other economic benefits, but researchers reported they could not tie all the gains directly to those programs.

And they will only succeed if investors decide to put money into them.

The zones were the brainchild of the Economic Innovation Group, a nonpartisan think tank based in Washington, DC. Last year, that group published a Distressed Communities Index tool that measured how well places were faring based on factors surrounding poverty, education, housing, employment, and job and business creation.

That report concluded that one in six Americans, or a total of 52.3 million people, are living in economically distressed ZIP codes, where the median household income is significantly below the national average of $59,000 and job and business losses averaged 6 percent.

“Years into a steady economic expansion, it is all too easy to look at a low unemployment rate or record stock market gains and conclude that the tide is rising everywhere,” the report states. “As we will see, hidden beneath the national numbers is a deeply fragmented landscape of economic wellbeing — one in which far too many communities are being left behind.”

Most-distressed cities

The report found that 12.7 percent of people in New Jersey live in distressed ZIP codes, and it named three of the state’s cities among the most distressed in the nation. Newark ranked second most-distressed of the 100 largest American cities, while Trenton ranked second and Camden third most-distressed of the nation’s small and midsized cities.

All three of those cities include census tracts that Murphy has recommended be designated Opportunity Zones. These are the other communities with areas on the governor’s list: